Yves Mersch, a member of the executive committee of the European Central Bank (ECB), spoke about the dangers associated with Bitcoin and other cryptocurrencies during a recent interview with German Newspaper Boersen Zeitung. Mr. Mersch said that the speculative nature of trading cryptocurrencies pose a threat to the global financial stability.
According to Mr. Mersch, one of the main issues with the current conditions of the cryptocurrency market is the fact that many individual investors are taking loans and other forms of credit in order to create liquid assets that can be invested into Bitcoin and other volatile virtual currencies. The risk is intensified when people take mortgages to pay for such an unstable investment, while attempting to maintain important commitments.
Banks and Exchanges Jump on Bitcoin Bandwagon
Moreover, banks and financial institutions have begun to enter and invest in the cryptocurrency market, further alarming the ECB over the future of the global economic spectrum. As explained by Mr. Mersch: “When financial market infrastructures such as stock exchanges enter this business, there is a risk to the financial stability.”
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During December, both the CBOE and CME launched Bitcoin futures to accommodate the fast-growing demand for the digital currency. In fact, based on sources familiar with the situation, Finance Magnates has previously reported that both of the aforementioned exchanges have imminent plans to also launch futures on Ethereum and Litecoin. The increased integration of standardized exchanges and banks into the newly adapted cryptocurrency market is causing the ECB to reassess the level of risk to individual investors, and to a greater extent, the entire global economic ecosystem.
Low Interest Rates Leading to Risky Investments
Mr. Mersch explicitly associated the out of control risk appetite of crypto investors to the historically low interest rate levels that have been in place for almost a decade. Low interest rates create a financial environment in which saving is not financially sustainable, since people are not earning any interest on their money.
He even takes things further by saying: “Can you imagine that a whole generation grows without knowing what it means to earn interest for your money?” It is clear that the ECB believes it is time for banks to step in and take steps to control an increasingly risky venture in Bitcoin and cryptocurrencies. In an effort to combat the heightened appeal in cryptocurrencies, Mr. Mersch has urged banks “to implement instant payments as soon as possible and provide an alternative narrative to the ongoing public debate on the alleged innovation brought by virtual currency schemes.”